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Jim Cook

 

RUNAWAY SOCIAL SYMPATHY

Every once in a while I switch the TV channel from Fox to CNBC to see what the liberals are saying.  After listening awhile I get a deep sense of hopelessness and foreboding for our country.  The most important thing for the left is giving money to people.  They are happy to see the growth of food stamps, disability payments, housing subsidies, free healthcare and all the other welfare benefits.  They utterly fail to see the damage it is doing to the recipients.  Whole cities that once flourished have deteriorated into rotting eyesores populated with shambling hulks of chemically dependent drones.  These people are no longer employable.  They have become incompetent and helpless and the liberals can’t see that it’s their doing.

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The Best of Jim Cook Archive

 
Best of Puru Saxena
June 2, 2010
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BLOWING BUBBLES

BIG PICTURE – Let’s face it; central banks are blowing another asset bubble.  As if two burst bubbles in the prior decade are not enough, the money maestros have decided to fuel another speculative orgy. 

Let there be no doubt, both the technology and real-estate bubbles were spawned by cheap credit and it is now clear that the central banks have learned nothing from those two episodes.  Despite the fact that near-zero interest-rates caused the previous mishaps, the central banks are (once again) pursuing a suicidal monetary policy.  By keeping interest-rates well below the rate of inflation, the officials are encouraging speculation, thereby sowing the seeds of yet another asset bubble.

At present, the yield curve is steep in most nations and the cost of borrowing is low, so is it any surprise that asset markets are rallying?  All over the world, asset prices are inflating again and dangerous excesses are around the corner.  Only this time around, the public sector in the West is already over-leveraged and when the next asset bubble bursts, governments will not be able to come to the rescue.

Today, most of the developed world is drowning in debt and various industrialised nations face severe deficits.  Moreover, these over-indebted economies are struggling to grow, therefore it is highly unlikely that their stock markets will provide leadership.

At present, the Fed Funds Rate is extremely low and if the economic recovery remains intact, then over the following months, interest-rates will rise.  In our opinion, the next bear-market will only occur when the Federal Reserve is done raising its benchmark rate for this cycle.  Now, given the precarious state of the US economy, we suspect that the Federal Reserve will increase interest-rates in baby-steps and the next monetary tightening cycle should last for at least 2-3 years.  If our guesstimate turns out to be correct, the next significant correction in asset prices will occur around 2012-2013 and until then, we intend to enjoy the benefits of cheap money.

Now, before you get excited, we want to caution you that the next bear-market has the potential to be as equally traumatising as the previous one.  Remember, when the bear returns in 2-3 years time, governments in the West will be unable to provide more ‘stimulus’.  By then, their balance-sheets will be in a terrible state and during the next bear-market, sovereign default risk will be the Achilles Heel.  So, in the next bear-market, instead of financial institutions going bust, entire nations are likely to default.